Shorting in Broad Daylight: Short Sales and Venue Choice

44 Pages Posted: 1 Aug 2018 Last revised: 12 Mar 2019

See all articles by Adam V. Reed

Adam V. Reed

University of North Carolina Kenan-Flagler Business School

Mehrdad Samadi

Southern Methodist University (SMU) - Finance Department

Jonathan S. Sokobin

FINRA

Date Written: March 10, 2019

Abstract

Using a novel database on venue short sales and market design characteristics, we ask: Where do short sellers exploit their information advantage? Consistent with the prediction of Zhu (2014), we find that exchange short sales comprise a larger proportion of trading and are more informative about future prices than dark pool short sales, particularly when there is greater competition among short sellers to trade and in the presence of short-lived information. When examining market design characteristics, we find that dark pools offering volume weighted average price crossing attract more short sales while those offering block trading attract fewer short sales.

Keywords: Information, market design, trading, short sales, return predictability

JEL Classification: G1, G10

Suggested Citation

Reed, Adam V. and Samadi, Mehrdad and Sokobin, Jonathan, Shorting in Broad Daylight: Short Sales and Venue Choice (March 10, 2019). Kenan Institute of Private Enterprise Research Paper No. 18-14; SMU Cox School of Business Research Paper No. 18-27. Available at SSRN: https://ssrn.com/abstract=3210821 or http://dx.doi.org/10.2139/ssrn.3210821

Adam V. Reed (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Mehrdad Samadi

Southern Methodist University (SMU) - Finance Department ( email )

United States

Jonathan Sokobin

FINRA ( email )

1735 K Street NW
Washington, DC 20006-1506
United States
(202) 728-8248 (Phone)
(301) 527-4809 (Fax)

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